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EQS Group
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== Summary == '''EQS is in a strong position to build its client base as the EU whistleblowing directive comes into force across Europe. Delays in adoption of formal legislation are a frustration but do not detract from the strength of the underlying proposition. EQS retains its ambition to be the leading European cloud provider for global investor relations and corporate compliance solutions by 2025. The €45m raised in March will help fund the repayment of short-term bank and vendor loans during Q222. Edison Investment Research sees management’s targets of €130m of group revenues and EBITDA margins of at least 30% for FY25 as demanding but achievable.''' {| class="wikitable" |+Key financials<ref>Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.</ref> !Year end !Revenue (€m) !EBITDA (€m) !PBT* (€m) !EPS* (c) !EV/EBITDA (x) !P/E (x) |- |12/20 |37.6 |4.8 |0.4 |4.1 |67.6 |711.7 |- |12/21 |50.2 |1.7 |(5.9) |(69.8) |184.6 |N/A |- |12/22e |70.0 |7.5 |(0.0) |(0.1) |42.9 |N/A |- |12/23e |90.0 |18.0 |10.5 |68.5 |17.9 |42.8 |} === German legislative adoption set for H222 === While EQS conducts business across Europe, the German market is its largest (72% of FY21 revenue) and it is here that it has the greatest opportunity to grow its client base as the new whistleblowing regulation comes into force. The feedback and consultation period on the proposed legislation should now be complete. There is optimism that the law will be transposed prior to the summer and implemented in H222. The group’s experience in Denmark was that corporates rushed to comply at the last minute. It is likely that this pattern will be repeated in Germany. === Guidance revised but Edison Investment Research's forecasts are unchanged === Q122 saw an uplift of 34% in revenue and a higher-than-expected EBITDA due to lower spending on marketing and sales. Revenue growth for the year is guided at 30–40%, down from 30–50% growth at the FY21 results, with forecast EBITDA of €6–10m (unchanged). Edison Investment Research maintains its revenue forecast at €70m, now at the higher-end, rather than mid-range. Any further slippages to the timetable would prompt us to review this. March’s €45m fund-raise has put the group onto a firm financial footing to continue with the investment needed to grasp the whistleblowing opportunity and start building out the bases for a similar offering for ESG reporting. === Valuation: DCF indicates meaningful upside === EQS’s share price has retreated by 35% since the start of the year, while financial B2B company valuations have fallen by 32% and those of application software companies by the same percentage. Profitability is currently subdued by the additional investment phase, so traditional valuation multiples remain of limited use. For its DCF, Edison Investment Research has raised the WACC by 1% to 9% to reflect rising interest rates, rather than any company-specific reason. Using this and terminal growth of 2%, the DCF now indicates a value of €47.66/share, from Edison Investment Research's April figure of €57.93, a level still well above the current market price.
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